FTSE live: market report - as it happened, July 27, 2011

The FTSE 100 sank into the red as US politicians continue to wrangle over the
country's $14.3 trillion debt ceiling.

Traders remained reluctant to put their money on the table amid fears that US lawmakers will fail to agree a deal to avoid a default on the country’s debt, and European sovereign debt concerns still preyed on dealers’ minds.

Banks bore the brunt of the sell-off, with Lloyds Banking Group, Royal Bank of Scotland and Barclays among the sharpest fallers as strategists at Goldman Sachs cut their stance on the banking sector to “neutral” from “overweight”.

Although the banks rallied strongly last week after European leaders struck an agreement to prop up debt-laden Greece, Goldman pointed out that disquiet about the deal remained.

“After the initial optimism (the package included some very important elements that were above market expectations), doubts have started to creep back into the market,” said the broker.

“In particular these revolve around the scope for funding the new initiatives, particularly in relation to the upsized role of the European Financial Stability Facility.”

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Goldman pointed to other factors that could weigh on the banks, such as weak domestic demand throughout the periphery of Europe.

“Concerns about capital raisings are also likely to remain high for some time, despite the relatively benign outcome of the stress tests,” it added.

Nervous investors bailed out of the banks, sending Lloyds down 1.94 to 43.24p while Royal Bank of Scotland shed 1.16 to 35.01p and Barclays lost 7.75 to 221p.

Their fall came as the market remained jittery about a failure to break the debt deadlock in America, where the Government is expected to hit its borrowing limit on August 2. Persistent sovereign debt concerns in Europe were also evident in a widening of Spanish and Italian bond yields. The FTSE 100 tumbled 73.15 points to 5856.58 while the FTSE 250 sank 138.58 points to 11650.34.

3.34pm: Wall Street drags FTSE lower

The FTSE 100 has sunk further into the red after disappointing data from the US weighed on sentiment. Orders for durable goods unexpectedly decreased which, along with an ongoing stalemate over cutting the US deficit, dragged down stocks on both sides of the Atlantic. London's blue-chips tumbled 81 points to 5848 while the Dow Jones Industrial Average slid 123 points to 12377.

Spirent Communications, the mid-cap telecommunications testing company, was also hurt by news from the US. Juniper Networks, an American maker of internet networking equipment, saw its shares tumble after reporting sales and profits that missed estimates after customers put off buying new gear. The company was also cautious about the outlook fo the second half of the year, yet optimistic about 2012.

Writing on the read-across from Juniper, Nick James, an analyst at Numis, said he remained comfortable about Spirent's ability to meet its first-half and full-year expectations. But he added that potential for upgrades was limited. Spirent fell 7pc.

10.55am: FTSE treads water as software companies head higher

London's benchmark index was treading water this morning, with the FTSE 100 off 9 points to 5920. The FTSE 250 dropped 12 points to 11776.

Simon Denham, head of Capital Spreads, said:

"The tight trading ranges of the past few days could continue into today and one thing is for certain that until US politicians come to some sort of agreement on the debt ceiling, we are unlikely to see any big gains for equity markets."

Software companies were in focus after Sage said that trading was in line with expectations and that "despite an uncertain economic backdrop", it had continued to deliver good growth. The accounting software business put on 2.7pc That helped its software peer, Autonomy, rise 1.9pc.

Amongst the second-liners, CSR rose 3pc after the maker of microchips said it expected its strength in audio and automotive markets to insulate it from the faltering demand for other electronics goods that threatens some in the industry in the second half of the year.

Rival chip makers and designers have sounded notes of caution ahead of the back-to-school and Christmas holiday seasons.

Rival Scottish and Southern fell 5pc. Ofgem is investigating the company for misselling, alongside rivals Scottish Power, EDF and Npower.

ITV shares 1.1pc in early morning deals, to 67.25p, as the company reported advertising revenues had fallen 6pc in recent weeks.

Elsewhere in Europe, Frankfurt's DAX 30 shed 0.49pc to 7,315.75 and in Paris the CAC 40 slid 0.35pc to 3,774.54.

Asian stock markets drifted on Wednesday as US lawmakers failed to make significant progress on raising its borrowing limit.

US Republican leaders had promised a vote today in the House of Representatives on a plan to increase the $14.3 trillion debt limit and avoid America's first-ever default, but it was put off until at least Thursday.

Currently, about 40 cents of every dollar spent by the US government is borrowed. Lawmakers are divided over how to get the US government accounts into a healthier state in the longer term.

"I expect continued volatility with uncertainty looming above in the clouds ... until a solid resolution has been agreed with both Democrats and Republicans," said Sam Le Cornu, a portfolio manager of Asian equities at Macquarie Funds Group.

Most Asian markets traded in a tight range. Japan's Nikkei 225 stock average fell 0.6pc to 10,038.27 and Australia's S&P/ASX 200 dropped 0.6pc, while South Korea's Kospi rose 0.1pc after the country's central bank said economic growth slowed in the second quarter.

Hong Kong's Hang Seng was down less than 0.1pc at 22,557.23 while China's Shanghai Composite gained 0.3pc.

The US debt crisis pushed the dollar lower against Asian currencies, which is helping prop up Asian markets because when the dollar weakens, it's better for investors to hold Asian rather than US stocks.

Gold prices hit a record high at more than $1,623 an ounce as news out of Washington indicated politicians were making little progress in ending the deadlock over lifting the US debt ceiling.